The situation in Greece has become a rather fashionable subject lately, in the sense that economists around the world and traders are wondering what would happen if the country is to leave the Eurozone.
The subject as a whole is extremely interesting, and before attempting an answer, one should make a distinction between Eurozone and European Union. Not all countries that are members of the European Union are members of the Eurozone. To give you an example, the United Kingdom is a European Union member but it still uses its own currency, the Great British Pound (GBP).
That being said, Greece has a few options on the table:
- The most logical outcome is for a compromise to be found and current negotiations to bring a much-expected solution.
- Greece leaves the Eurozone but still stays in the European Union.
- Greece leaves the European Union.
How would the Euro as a common currency look if any of the above options happen?
In the first instance, the Euro will most likely enjoy a relief rally in the sense that market participants would enjoy the fact that a solution has been found. The aftermath should see lower values as the burden on the Greek’s shoulders is not going anywhere, so the country will still drag behind other European counterparts for decades.
The second case is highly unlikely as, if the European Union accepts such a solution it will set a dangerous precedent that any country within the Eurozone will look to as a solution to deal with issues surrounding debt and the common currency. This would send a strong negative signal overall for the European Union but would be positive for the Euro as a whole after a spike lower, as a Euro without Greece (or debt) ends up being stronger.
Finally, the third possibility is simply not possible. According to the treaty the European Union is built upon, it cannot allow a country to exit the Union unless it wants to and unanimity is found. The chances of this happening are practically zero.
As a consequence, we’re staying with the most realistic scenario, the first one, and the recent replacement of Mr. Varoufakis from the negotiating team brings a positive signal for an agreement to be reached in time.
After all, time is ticking and if Greece effectively runs out of money, the Euro would not enjoy a Greek default, nor Greece’s creditors.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
